Oct. 3, 2013

Richard Herrington, president of Franklin Synergy Bank

Written by

Jamie McGee

The Tennessean

Banks going public

Should Franklin Synergy go public, it will join Pinnacle Bank, whose parent company, Pinnacle Financial Partners, was added to the Nasdaq exchange in 2002, as a publicly traded local bank. In addition to Franklin Synergy, CapStar Bank, which just passed the $1 billion mark in assets, is another likely IPO candidate.

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Franklin Synergy Bank is seeking to raise $15 million through institutional investors as the next step toward an eventual initial public offering, according to CEO Richard Herrington.

The new round of capital will come from institutional investors, including hedge funds, and is expected to close by the end of the year. The Franklin-based bank, which has more than $600 million in assets, could pursue a public offering on the Nasdaq stock market as early as 2015, Herrington said.

“When we sold our stock initially, we promised our shareholders to give them a liquidity event other than selling the bank,” Herrington said. “Our idea was to build something that is going to be here for decades. … We know somewhere down the road people are going to want to have the opportunity to cash in and recognize the increase in value. A way to do that is to be a publicly traded bank.”

The rate of public offerings among community banks has slowed since the financial crisis, as banks have struggled with problem loans, low loan demand and increased regulations that have weighed on earnings. Since 2012, offerings have picked up in the financial sector, a positive sign for those banks seeking cash or options for investors.

If Franklin Synergy is able to join the Nasdaq, it will be Herrington’s third time — and last, he said — to take a bank public. He co-founded Franklin National Bank in 1989; it went public and was sold in 2004 to Cincinnati-based Fifth Third Bank. He took Civitas BankGroup, parent company of Cumberland Bank, public in 2006, and it sold to GreenBank in 2007.

“Richard’s got a much easier capital-raising proposition than many community banks because he is in an awesome market, that being Williamson County,” said Jeff Davis, managing director of Mercer Capital’s Financial Institutions Group in Nashville. “He and his management team are longtime successful bankers in that market. The fact he sold Franklin National to Fifth Third for a very large multiple of book value, it’s another enticement for perspective shareholders to invest in Synergy.”

Franklin Synergy, because it launched a year before the financial markets tumbled in 2008, was not saddled with the same amount of bad loans that plagued older banks.

“We were growing when other banks were struggling,” Herrington said.

This is the fourth round of capital the bank has raised, having raised $26.25 million to open in 2007, $2.8 million in 2008 and $6.5 million in 2009.

Herrington has expressed interesting in a public offering in the past, but with a lower investor appetite for bank offerings in recent years, that progress has slowed. He wants Franklin Synergy to reach $1 billion in assets, a necessary threshold in today’s climate, before going public, he said. The bank reached $500 million in assets in February 2012 and reported $536 million in deposits as of June 30, making it the Nashville area’s 14th-largest bank by deposits.

Loan growth at the bank rose 30 percent to $299 million in 2012, a rate that Herrington expects to duplicate this year, in contrast with an industry that has seen loan demand decline this year.

Overall loan portfolios declined at 38 percent of banks in the Southern region in the second quarter, according to a recent Office of the Comptroller of the Currency report.

The bank, with 118 employees, is also undergoing an expansion at its Franklin headquarters, doubling its size to about 32,000 square feet to make room for its mortgage team. Additionally, it is adding a fifth branch in Berry Farms in Franklin.

Herrington said he has no plans to sell the bank but is open to buying another bank in the area.

“In our 24 years, we have never acquired a branch or a bank, we’ve done it all organically,” he said. “But we are looking.”